Finding the key to consistent equity growth.

What is it retail and SMSF investors really want from their equity portfolio?

Growth in equity, plain and simple and that makes complete sense.

With that key purpose in mind we can as individuals go about developing a strategy devoid of traditional rules that allows you to build that cash pile in a safe environment and one that you can then comfortably retire on. The key is not to lose money and that also makes sense but is not always as simple as it sounds, or is it.

Investors want to grow their equity each year not just out perform an index and this is an important difference because as we all know indices go down as well as up. Most retail funds quoted in the financial publications are index based and thus go up and down with the major stock market index, the ASX/200. That’s not what we want.

The problem is funds are mandated to hold very high levels of equity at all times so when the markets drop they are stuck holding shrinking equity. There is nowhere for them to hide. When investors get caught in these downswings it is with disastrous results and then you have to start rebuilding your capital again and that’s frustrating and it takes time. Thus we have a mismatch between the ‘need’ and what is being offered.

When markets are going up everyone is happy and we all make money and that’s the easy bit but when they go down things change and this is where proper risk control can make a big difference. Remember your retirement depends on getting it right, or to put it another way, don’t lose your capital. If you consider these guidelines set out below it will set you on the right track. It is empowering and it gives you back the control.

Firstly, you set an objective, which is to achieve absolute returns year on year, not one that follows an index up and down. This makes your starting point far more appropriate and will help you more easily understand and establish a clear direction of how you are going to get there. This approach is called ‘index unaware’, as it doesn’t follow the indices like the ASX/200, and when coupled with the right risk management techniques and the right expectations it will provide you with a clear path to achieving that steady growth in your equity that we all desire.

An absolute return objective is driven by two key elements:

  1. A proper risk management strategy does not tolerate drawdowns or losses in excess of a predetermined amount.
  1. It can move to high levels of cash when appropriate. i.e. what markets are falling

We can thus make the necessary decision to exit falling stocks and preserve our capital.

 

It really is that simple it just needs to be implemented in the appropriate way.

Corrections come in different shapes and sizes and we never know how big or small they might be or which stocks will fall more than others. We still always need to have protection and this is where specific stock management is of utmost importance and is what ensures survival. Stockradar uses a simple two-pronged strategy and unique algorithm that protects against falling prices (limiting risk) but also ensures you are exposed to stock up trends (profits).

My aim is to provide an independent, unbiased service and develop a real relationship with members based on transparency, trust, and integrity and in doing so help them build safe and steady growth in their equity and a nest egg for retirement.